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Facts
The assessee, proprietor of M/s Raj Kamal Decorators, deposited Rs. 35,00,000/- cash during demonetization. The AO treated Rs. 33,00,000/- as unexplained under Section 69A, which the CIT(A) largely confirmed to Rs. 30,45,000/-. The assessee contended the cash originated from housing loan withdrawals, which remained idle due to construction delays and were subsequently deposited.
Held
The Tribunal found that the assessee had provided credible evidence for the source of cash from genuine housing loan withdrawals and that the Department failed to show the funds were used elsewhere. Citing the Punjab & Haryana High Court judgment in Shivcharan Dass v. CIT, the Tribunal ruled that mere time lapse between withdrawal and deposit does not justify addition. Therefore, the addition was deleted to the extent of Rs. 27,45,000/-, restricting the unexplained cash to Rs. 3,00,000/-.
Key Issues
Whether cash deposits made during demonetization, sourced from genuine housing loan withdrawals, constituted unexplained money under Section 69A, and if the higher tax rate under Section 115BBE was applicable.
Sections Cited
143(3), 250, 69A, 115BBE
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M: This appeal by the assessee arises from the order of the Ld. CIT(A)/ NFAC, Delhi, dated 07.04.2025, for A.Y. 2017-18, against assessment order passed u/s 143(3) of the Income-tax Act, 1961, by the ITO, Ward-4, Patiala dated 18.11.2019. 2. In the present appeal Assessee has raised the following grounds:
1. That on the facts, circumstances and legal position of the case, Worthy CIT(А), NFAC in Appeal No. CIT (A), Patiala/10264/2019-20 has erred in passing order u/s 250 dtd.07.04.2025 as the same is in contravention of provisions of s. 250 of the Income Tax Act, 1961 (hereinafter referred to as "Act").
2. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the addition made by the Ld. AO of Rs. 30,45,000/- u/s 69A by erroneously holding cash deposit in bank during the demonetization period as unexplained. 3. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO in imposing tax rate of 60% u/s 115BBE plus surcharge thereon on above addition made u/s 69A in Ground No. 2, even when if the said addition is accepted academically, the same could only have been taxed at normal slab rates.
4. That on facts, circumstances and legal position of the case, the orders passed by Ld. AO and then by Worthy CIT(A) deserves to be quashed since the same have been passed in total violation of principles of natural justice.
5. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
Briefly, the facts of the case are that the assessee, proprietor of M/s Raj Kamal Decorators, filed return declaring income of Rs.2,34,230/-. During demonetisation, cash deposits of Rs.35,00,000/- were made in his SBI account. The Assessing Officer accepted Rs.2,00,000/- as explained and treated the balance Rs.33,00,000/- as unexplained money u/s 69A of the Act.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The learned CIT(A) examined the cash book and found that the assessee had recorded business receipts of Rs.8,85,000/– and rental income of Rs.1,10,000/–. The CIT(A) accepted the explanation of the assessee to the extent of Rs.4,45,000/–, holding that such amount could be reasonably related to business income. However, the learned CIT(A) confirmed the balance addition of Rs.30,45,000/–, holding that the explanation of retaining such a large sum in cash for nearly a year was not supported by any independent evidence and was against normal human conduct.
Aggrieved by the order of the Ld. CIT(A), the assessee has filed the present appeal before the Tribunal.
During the course of hearing, the Ld. AR submitted that the lower authorities had disbelieved the assessee’s explanation on mere conjectures. He argued that the assessee had taken two housing loans from DHFL — Rs.60,00,000/– sanctioned in December 2014 and Rs.12,09,123/– sanctioned in April 2016 — both of which were fully verified by the Assessing Officer. He pointed out that the loan withdrawals were made through account payee transactions, and the unutilised portion of Rs.30,85,952/– was reflected in the assessee’s personal cash book and balance sheet as on 31.03.2016. The assessee had kept this cash for meeting further construction needs, but due to delay in construction and change of plan, the cash remained idle and was deposited during demonetisation.
6.1 The Ld. AR contended that the Assessing Officer had not found the books of account or the loan records to be false or fabricated. The only reason for rejection was the time gap between withdrawal and deposit. He submitted that there was no material brought on record by the Department to suggest that the withdrawn amount had been spent or diverted elsewhere. Relying on the judgment of the Hon’ble Punjab & Haryana High Court in Shivcharan Dass v. CIT (126 ITR 263), the authorised representative argued that once the assessee had proved the source of cash withdrawal and the Department had not shown that the amount was used elsewhere, no addition could be made merely because the amount was retained for a long time. He also referred to the decision of the Hon’ble Supreme Court in Dhakeshwari Cotton Mills Ltd. v. CIT (26 ITR 775), to submit that suspicion, however strong, cannot take the place of proof.
6.2 The Ld. AR therefore urged that the order of the CIT(A) sustaining addition of Rs.30,45,000/– be set aside and that the deposits be treated as explained in full.
The Ld. DR on the other hand, strongly supported the orders of the authorities below. He contended that the explanation of the assessee was against normal human probability, as no prudent person would retain large cash withdrawn from a housing loan while continuing to pay interest on borrowed funds. The departmental representative argued that the CIT(A) had adopted a balanced approach by allowing relief for the part which was linked to business income and sustaining the balance where the explanation lacked evidentiary support. He therefore urged that the order of the CIT(A) be upheld.
We have carefully considered the rival submissions and examined the record. It is not in dispute that the assessee had obtained housing loans from DHFL and that substantial withdrawals were made therefrom. It is also not disputed that these withdrawals were genuine. The question is whether the cash claimed to have been withdrawn from these loans could reasonably be considered to have remained with the assessee till the time of deposit during demonetisation.
8.1 The Assessing Officer has not brought any evidence on record to show that the cash withdrawn from the DHFL loans was actually spent or diverted for any other purpose. The entire addition rests only on the assumption that retention of such a large amount in cash for several months is improbable. Such presumption, in our considered view, cannot be equated with evidence.
8.2 The Hon’ble jurisdictional Punjab & Haryana High Court in Shivcharan Dass v. CIT (126 ITR 263) has laid down that where an assessee proves the withdrawal of cash from bank and the Department fails to establish that such cash was utilised elsewhere, the mere lapse of time between withdrawal and deposit does not justify addition as income from undisclosed sources. The Court observed that the Revenue cannot reject a reasonable and supported explanation merely on suspicion or conjecture. The principle enunciated by the Hon’ble High Court squarely applies to the facts before us.
8.3 The assessee has produced credible evidence in the form of DHFL loan records, bank statements, and books of account demonstrating availability of cash. The Revenue has not controverted these evidences or shown that the funds were used elsewhere. Therefore, we hold that the assessee has satisfactorily explained the source of the cash deposits.
8.4 As regards the portion of Rs.4,45,000/– relating to business receipts, we find that the learned CIT(A) has already accepted the explanation, and that part requires no interference. However, in so far as the remaining addition of Rs.30,45,000/– is concerned, we find that the explanation of the assessee is reasonable and fully supported by the documentary evidence on record. Following the binding judgment of the jurisdictional High Court, we hold that the addition sustained by the CIT(A) cannot be upheld. We accordingly delete the addition of Rs.27,45,000/– made under section 69A of the Act and confirm the addition of Rs. 3,00,000/-.
In the result, the appeal of the assessee is partly allowed, and the addition stands restricted to Rs.3,00,000/-.